Edible Garden AG Incorporated (NASDAQ:EDBL) Q3 2023 Earnings Call Transcript

Edible Garden AG Incorporated (NASDAQ:EDBL) Q3 2023 Earnings Call Transcript November 17, 2023

Operator: Greetings, and welcome to the Edible Garden Third Quarter 2023 Business Update Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Ted Ayvas, Investor Relations. Ted, you may begin.

Ted Ayvas: Thanks, Tom. Good morning, and thank you for joining Edible Gardens’ Quarter Ended June 30, 2023 Conference Call and Business Update. On the call with us today are Jim Kras, Chief Executive Officer of Edible Garden; and Mike James, Chief Financial Officer of Edible Garden. Earlier this morning, the company announced its operating results for the 3 months ended September 30, 2023 — June 30, 2023, excuse me. The press release is posted on the company’s website, www.ediblegarden.com. In addition, the company will file its quarterly report on Form 10-Q with the U.S. Securities and Exchange Commission, which can also be accessed on the company’s website as well at www.sec.gov. If you have any questions after the call, or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020.

Before Mr. Kras reviews the company’s operating results for the quarter ended June 30, 2023, and provide the business update, we would like to remind everyone that this conference call may contain forward-looking statements. All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position, strategy and plans and our expectations for future operations are forward-looking statements. The words expect, project, plan, believe, may, will, would, should, could, mission, strategy, potential, seek, strive and the negative of such terms and other words and terms of similar expressions are intended to identify forward-looking statements. These forward-looking statements are based largely on the company’s current expectations and projections about future events and trends that it believes may affect its financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs.

These forward-looking statements are subject to several risks, uncertainties and assumptions as described in the company’s most recent quarterly report on Form 10-Q filed with the U.S. Securities and Exchange Commission. Because of these risks, uncertainties and assumptions, the forward-looking statements and circumstances discussed in this conference call may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance or achievements.

In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The company disclaims any duty to update these forward-looking statements, except as required by law. All forward-looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements as well as others made in this conference call. You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. With that, I would now like to turn the call over to Jim Kras. Jim?

Jim Kras: Thanks, Ted. Good morning, and thank you to everyone for joining us today. We continue to execute on our growth strategy as evidenced by the 19.4% increase in revenue for the third quarter of 2023. This growth reflects the expansion of our distribution channels, as well as our growing brand recognition. We continue to be a leader in our industry, setting the standard in terms of both service, excellence and dependability. As a result, an increasing number of retailers are choosing Edible Garden to fulfill their requirements for organic and sustainable products. The company is growing our distribution network by strengthening ties with current retailers as well as welcoming new retailers, thereby enhancing our reach.

For instance, our collaboration with Woodman’s Market has resulted in introducing Edible Garden produce and products across its 19 stores in Wisconsin and Illinois, Woodman’s addition to our retail distribution network registered presence in the Midwest and allows us to leverage our Edible Garden Heartland’s facility in Edible Garden Heartland facility in Grand Rapids, Michigan, which we launched in April of 2023. Additionally, we are pleased to welcome Tops Friendly Markets as the latest major retailer to join our distribution network and carry the Edible Garden brand, offering our range of sustainably growing, high-quality herbs. The addition to Top Friendly markets is significant as our products will now be available at all of their 149 stores across New York, Pennsylvania and Vermont.

In July, as previously reported, the company expanded its relationship with Walmart to provide additional SKUs at Edible Garden’s sustainably growing produce in locations across the Northeast as well as broadening our reach within Walmart’s retail locations in the East, South Central region of the United States. We have also continued with the rollout of our new pulp line sustainable gourmet sauces. All 16 outlet retail locations across New York metropolitan area have introduced the pulp line, representing the brand’s initial venture into the substantial and influential New York City marketplace. Morton Williams serves as an excellent partner for our pulp line alignment with their customers’ demand for flavorful, sustainable and organic fermented products, the content best expressed in the pulp tagline Bland to Bold.

Building on this momentum, the company also brought Deerberg’s market into its distribution network, introducing pulp gourmet Sauces selection all 26 of its outlets in the greater St. Louis metropolitan area as well as their location at Missouri’s Lake of the Ozarks. in the third quarter, Edible Garden launched EG Direct, a new division specifically focused on sourcing produce from partners and supplying these products to the company’s retail distribution network. The company has consistently outperformed our competitors as evidenced by order fulfillment rates, which routinely exceed industry averages. We view EG Direct as a strategic move to capitalize on the company’s existing distribution network, partners and its extensive network of over 5,000 retail locations, potentially opening up additional revenue streams by distributing essential high-volume produce such as Broccoli, Carrots and potatoes, among others.

We believe that EG Direct could have substantial effect on both revenue and profits of Edible Garden by leveraging our established infrastructure. Edible Garden began shipping fall ornamentals from our new edible garden Heartland facilities facility in Grand Rapids, Michigan just in time for the fall gardening season. These plants are now being shipped to prominent big box retailers across the company’s distribution network. Following the acquisition of Edible Garden’s Heartland last year, the company integrated cutting-edge technologies like our proprietary and patented GreenThumb greenhouse management to boost our supply chain efficiency, in addition to implementing our advanced growing techniques. These steps were in line with Edible Garden’s philosophy of maximizing all available assets at our disposal.

The company received a notice of allowance from the U.S. Patent and Trademark Office for our innovative self-watering display, underscoring our dedication to innovation. The self-watering display has proven to be a game changer, revolutionizing the way plant life is extended, maintaining optimal freshness and greatly reducing spoilage in retail settings. The implementation of this cutting-edge technology allows retailers to showcase plants at their freshest, minimizing waste and delivering superior products to the consumer. Initially introduced at all Meijer locations, the success of these displays has led to a broader national deployment. The company also started distributing 2 new flavors of our Vitamin Whey product line to Meijer stores across the Midwest.

These innovative additions, ice cream, cake and orange creamsicle enhance our flavor focused Vitamin Whey line, known for its advanced high-performance formula that supports muscle recovery and overall well-being, while also offering rate case. The product features our proprietary multivitamin Whey protein amino acid complex formulas. Vitamin Whey stands out for its exceptional value, providing superior supplementation and recovery benefits at an affordable price. We believe these new flavors will reinforce Edible Garden’s image as a flavor maker as we continue to develop innovative cutting-edge flavors in collaboration with our partner, Nutricon. Given Vitamin Whey’s successful history at Meijer, we’re optimistic that these new flavors will further enhance the brand’s appeal.

Our aim is to create highest quality and most flavorful way protein on the market, and we plan to launch a nationwide rollout of the product in the near future. Recently, the company was awarded a grant from the USDA Organic Certification program managed by the Farm Service Agency to cover various expenses related to organic crop certification at Belvidere, New Jersey facility. This support is valuable and appreciated as we continue to lead the controlled environment agriculture industry and prioritize local organic and sustainable produce. Additionally, falling grants from West Michigan works and the specialty Crop Block Program of the Michigan Department of Agriculture and Rural Development, our employees at Edible Garden Heartland facility will undergo additional leadership and food safety training.

These grants not only demonstrate our dedication to food safety, but also complement our ongoing research collaborations. We are currently working with the New York Institute of Technology, the USDA and the EPA on how nanobubble technology impacts food safety and processing of fresh produce. Moreover, our partnership with Auburn University’s Department of Horticulture is focused on addressing food safety issues related to food produce, fresh produce, such as — related to fresh produce such as contamination from listeria. These combined efforts reflect our commitment to maintaining the highest standards of food safety and quality in our products. In July, Edible Garden unveiled GreenThumb 2.0, the latest iteration of our sophisticated greenhouse management system, representing a major leap forward in automation technology.

This upgraded system enhances our dynamic forecasting abilities to utilize real-time data more efficiently. Our goal is to more accurately predict the requirements of our distribution partners and adapt our growing strategies accordingly. Overall, I’m encouraged by the outlook of the business, given the growth in our retail network, the expansion of our product offering and careful management of our expenses. As a result, we expect to maintain strong organic revenue growth and remain laser-focused on achieving our target of positive cash flow before year-end. I would like now to turn the call over to Mike James, Chief Financial Officer of Edible Garden, who will review the financial results for the 3-month period ending September 30, 2023. Mike?

Mike James: Thanks, Jim, and good morning. The company reported year-over-year revenue growth of 19.4%, with $3.3 million in the quarter ended September 30, 2023, compared to $2.8 million reported in the third quarter of 2022. the herbs, produce and floral business saw a 22.8% increase, primarily due to a net increase in orders received from our existing customer base and a slight increase in orders from — for herbs received from new distribution partners. Cost of goods sold was $3.3 million for the 3 months ended September 30, 2023, compared to $2.6 million for the 3 months ended September 30, 2022. We continue to use contract growers to grow herbs for our customers as we ramped up production in Edible Garden Heartland, which resulted in higher cost of goods sold.

Additional labor and material costs required to grow the products sold into the retail channel also contributed to the increase. Selling, general and administrative expenses were $2.4 for the 3 months ended September 30, 2023, an increase of $459,000 compared to $1.9 million for the 3 months ended September 30, 2022. The increase was primarily driven by an increase in costs incurred as it relates to the ramping up of operations of Edible Garden Heartland facility, which was acquired in August of 2022, as well as an increase in depreciation costs due to the acquisition of the facility. We also increased production of cut herbs, of Edible Garden Heartland, and our Belvidere, New Jersey, facility for which we purchased equipment intended to increase our efficiency.

Net loss was $2.4 million or $0.69 per share for the 3 months ended September 30, 2023, compared to a net loss of $2.1 million or $7.13 per share for the 3 months ended September 30, 2022. Before turning back the call over to the operator for questions, I would like to take a moment to discuss the successful public offering we completed in September, which generated roughly $3 million in gross proceeds. The capital raise was an important step that enabled us to obtain the essential financing required to expedite the company’s growth strategy. I would now like to open up the call for questions. Operator, could you please assist us with that?

Operator: [Operator Instructions] And your first question this morning is coming from Anthony Vendetti from Maxim Group.

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Q&A Session

Anthony Vendetti : I was just wondering if you could just give us a little more color. You’ve signed up lots of new partners. Any highlights from the Walmart partnership or any of the other recent partnerships that you signed up? What do you think is giving you that — the ability to get these new contracts? And then in terms of margins, as you roll out some of the higher-margin products, should we start to see that materialize in higher gross margins in the following quarters?

Jim Kras: Thanks, Anthony. With regards to new the distribution, the company has continued to build the momentum of the success at key partners like Meijer. Obviously, there is syndicated data out there that show the market share that we continue to help drive for our partners. Walmart, I think, has seen that as well as our performance as a top flat — the picker/packer, shipper with great in-stock rates and fill rates, which is a lot of them, obviously, the gate share themselves in this category. So we were awarded additional business, as I noted in the script today, at — by bringing in more distribution centers, I think, hopefully, we’ll continue to see that type of commitment from Walmart as they look at us as a trusted partner, considering our performance.

Word gets out in this industry and people turn to us to supply their herb needs. I think you see that, that’s evident with tops. There’s always the challenge of someone having an existing supplier and long-standing relationships. So they — when you’re talking about the size of businesses that they are looking to move to, let’s say, to an Edible Garden, that process is well thought out and evaluated before they do so. So it’s a real credit to the company when we do pick up new accounts. Because usually, you’re just dislodging a competitor and the buyers do not make moves that quickly. So I think just performance, in-stock rates, fill rates, commitment, support, customer service and we continue to fire on all cylinders and execute. And I think that’s why you see the type of growth that you see in the additional partnerships that we’re bringing in from the retailers, I think, and I think that will continue.

As far as the higher-margin pulp sustainable products — sustainable sauces and products like that, you’ll continue to see more offerings. New products are always the lifeblood of a consumer packaged goods company. I think you can see this evolution of Edible Garden go from grower — picker/packer, shipper, grower to more of a, I think integrated provider of not only living products, but more shelf-stable products that we can help grow some of the ingredients and have high quality, all with an eye on sustainability through this idea or notion of just this EA informed next-generation CPG company, which I think is the big vision for the company moving forward, and we’re already making strides towards that.

Anthony Vendetti: Okay. Great. And then — so Jim, just on the hot sauce, you mentioned that — when you’re selling that into your customer base, is that a different shelf space than your produce and herbs? Or how does the negotiation go when you’re dealing with hot sauce versus some of the fresh produce?

Jim Kras: Sure. Great question. The strategy here was to continue to — we always focus — Mike and I really focus on leveraging the existing assets that we have to get the most out of that. And this is a great example of that, where we developed this line of sauces, scaled it up. We made that investment this last quarter in inventory and sales calls, but that product and the buyer that we call on is the same buyer that buys produce. And so the strategy with this is to have this in the refrigerated salad dressings part of the produce section, and the buyer is usually the same buyer that’s already buying our herbs. So it’s a new product. It’s an extension from where we’re at. Obviously, peppers are sold in produce. So it’s a natural fit.

And so for us to — the barriers of entry to that buyer are kind of wiped away because we’re already shipping in. So not only have we picked up — not only it has proven to be a door opener with the likes of Deer Berg’s and some of these other areas of the country where it’s totally new, and they may not necessarily be taking our produce, but with Metro New York and Eastern Mississippi where we’re a powerhouse, we’re able to go in there and present it. And like I said, the barriers of entry are pretty much eliminated. So — and it’s a unique new item that’s gotten some pretty good traction. So we’re pretty excited about the future, and we’re already making some pretty great strides on some new activity.

Anthony Vendetti : Okay. Great. And lastly, Jim or Mike, feel free to answer this question. So in terms of pricing, a number of our companies have taken price increases in this obviously inflationary environment. Have you been able to do that at this point? Are you planning on doing that? Or do you have to sort of wait until the reset? How does that work for you in terms of taking price increases?

Jim Kras: Do you want me to answer that? Or do you want, Mike? I can answer that, and Mike, feel free to chime in.

Mike James: Sure.

Jim Kras: Look, I think we’ve worked hard this past year to take price increases. We’ve held our prices you go back and you look at some of our releases, we worked hard to hold prices through the pandemic prior to the IPO, and then we help prices through kind of the integration of being a public company as well as providing that value to our retailers. We started to take price increases really this year and that was accepted because I think I know we were a great partner to our retailers. So they were obviously willing to help us out and put us in a position, to continue to grow. I think that — few still suffers a little bit from inflation. It’s come down quite a bit, but I think, strategically, where warranted, and I think as we become more prominent with the brand, we try to do what we can on the price increase part.